MOTI LAL Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THIS is an application under article 226 of the Constitution by two persons who were partners of a firm which carried on business in the name and style of Indian Distillery at Anwarganj, Kanpur, praying for the issue of a writ of certiorari quashing the notices of demand dated October 24, 1959, and a writ of prohibition or mandamus directing the respondent, Income-tax Officer, Kanpur, not to recover from the petitioners a sum of Rs. 11,125.62 in pursuance of the notices of demand dated October 24, 1959, mentioned above and for the issue of any other appropriate direction or order that may appear to be just and proper to this court. Reference has been made in the affidavit and the petition to an earlier petition filed in this court (Civil Miscellaneous Writ No. 321 of 1956) which was disposed of by an order of this court on February 17, 1959. That case related to proceedings taken by the Income-tax Officer for the realisation of the tax in respect of which the present petition has been filed. In that case several grounds were urged but the court found that in view of the fact that the petitioners had not been served with any notice of demand under section 29 of the Income-tax Act no recovery proceedings were maintainable against them. That petition was, therefore, allowed.

(2.) AFTER the decision of this court it appears that the Income-tax Officer issued notices of demand to the persons who were partners of the aforesaid firm at the time of its dissolution and in the relevant year. These notices are dated October 24, 1959. It is mentioned in the affidavit by the petitioners that they were served with these notices on March 9, 1960. It is contended that the assessment in respect of which these notices of demand have been issued was made on the firm itself in the status of an unregistered firm. When such an assessment is made the firm itself is liable and under the Income-tax Act the firm is an entity which maybe dealt with according to law. No assessment was made on the partners as such and as a notice of demand can be issued only to require a person assessed to pay tax the present notices were illegal and could not have been issued by the Income-tax Officer. It is also contended that the assessment itself was illegal because it was made on a firm which was not in existence on the date of the assessment. Another ground urged is that the notice under section 29 was accompanied by a letter from the Income-tax Officer saying that this notice of demand under section 29 was being issued in consequence of an order of this court. Learned counsel contends that no notice of demand under section 29 may be issued according to law in consequence of an order of this court on a writ petition. Only orders under the Income-tax Act could be followed by a notice under section 29 and the notice in dispute in the present case is invalid for that reason also. The last contention raised is that the notice served on Sri Purshottam was incorrect and invalid because though addressed Sri Purshottam Das has status was shown in the notice as that of an unregistered firm, and paragraph 7 of the notice, which mentions that the person who was served with the notice may prefer an appeal under section 30 of the Act to the Appellate Assistant Commissioner, was scored of. So far as the contention relating to the validity of the assessment itself is concerned it was disposed of by the court in the earlier writ. The contention of learned counsel for the petitioners in the earlier writ was that the order of assessment in question which related to the assessment year 1944-45 was passed by the Income-tax Officer on February 22, 1949, on the firm as an assessee when the firm had been dissolved earlier on February 7, 1948. It was contended that after the firm had been dissolved it became non-existent and there could be no assessment on a non-existent entity. This contention was challenged on behalf of the department in the earlier writ and it was urged that as that assessment was made before the coming into force of the Constitution this court could not dispute the validity of that assessment in writ proceedings. The view expressed in this connection by the Supreme Court in Suraj Mall Mohta and Co. v. Viswanatha Sastri was considered and this court found that the validity of that assessment could not be adjudicated upon by this court. The court held : The result is that we are now not competent to exercise our powers under article 226 of the Constitution to quash the order. This decision in our opinion disposes of the above contention relating to the validity of the assessment. We must, therefore, proceed on the assumption that the assessment is valid.

(3.) THERE may again be a case where a firm has to be assessed to tax and proceedings are started for the purpose but before they terminate in an assessment the firm is dissolved. It is open to the Income-tax Officer to proceed against the partners by invoking the aid of section 44 of the Act and to make an assessment and demand the tax from them.